S4E16 – Buying & Selling a SaaS: Everything you need to know with Blake Hutchison

Are you thinking about exiting your SaaS business? Unsure about where to start, who to talk to or what it’s worth is? This episode will guide you through buying and selling SaaS businesses with expert advice!

In this episode of the Grow Your B2B SaaS Podcast, Joran chats with Blake Hutchinson, CEO of Flippa. They dive into how to prepare for a business exit, the details of buying and selling SaaS businesses, and Blake’s own journey as an entrepreneur. This discussion is packed with valuable tips for anyone involved in the SaaS world.This episode looks at SaaS business transactions and gives helpful advice for new and experienced entrepreneurs.

Blake Hutchinson’s Background

Blake offers a deep dive into his impressive career trajectory, starting at Lonely Planet and spanning roles such as founding a VC-backed company and heading strategic partnerships at Xero. His rich background provides a treasure trove of knowledge for listeners keen on understanding the SaaS landscape.

Overview of Flippa

Blake introduces Flippa as a comprehensive platform for buying and selling online businesses. Flippa’s services include due diligence, brokerage, M&A insurance, and a payments platform, all designed to support users throughout the transaction process.

Flippa’s Market and Revenue Model

Celebrating its 15th anniversary, Flippa handles over 15,000 transactions annually, with a gross transaction value reaching several hundred million dollars. The platform’s revenue model includes listing fees, success fees, and subscription revenue, offering a diversified income stream that mitigates business risk.

Blake’s Entrepreneurial Insights

Blake underscores the critical importance of preparing for an exit from day one. By setting clear milestones and envisioning future success, entrepreneurs can build a solid framework that aligns with potential buyers’ expectations and metrics.

Challenges in Entrepreneurship

Blake shares candidly about the challenges he has faced, including the emotional and financial strains of running a business. He emphasizes knowing when to pivot or exit and recounts his transition back to the corporate world after his startup journey.

Misconceptions in SaaS Business Sales

Blake addresses several misconceptions in the SaaS business market, such as the confusion between subscription and SaaS revenue and the unrealistic expectations of high multiples for subscale businesses. He clarifies that buyers are more focused on past performance than on future potential.

Valuing a SaaS Business

The valuation of SaaS businesses generally ranges from 2 to 4 times ARR for subscale M&A transactions. Blake notes that while strategic buyers may offer premiums, such cases are rare and depend on specific strategic interests.

How to Prepare for an Exit

Blake advises founders to be well-versed in their key metrics, use effective tracking tools, and avoid overreliance on a few major customers. He emphasizes the importance of preparation and flexibility during negotiations to ensure a successful exit.

The Selling Process on Flippa

Blake outlines Flippa’s selling process, which begins with a valuation and proceeds through listing on either a public or private marketplace. The platform’s AI tools help match buyers and facilitate negotiations, due diligence, and final transactions.

Why Most Deals Fail to Materialize 

Common obstacles in deal-making include misalignment on price and delays. Blake highlights the need for realistic expectations and timely responses to keep transactions on track.

Advantages of Buying an Existing SaaS

Blake advocates for purchasing established businesses to enhance the likelihood of success. Acquiring businesses with proven revenue and customer bases offers a safer investment compared to starting from scratch.

Funding a SaaS Purchase

For those concerned about financing, Blake recommends starting with smaller acquisitions and leveraging existing user bases. Converting a non-SaaS business into a recurring revenue model can also be a strategic approach.

Growth Strategies for SaaS Companies

To scale a SaaS business to 10K MRR, Blake advises focusing on the highest price point customers are willing to pay. Once this milestone is reached, scaling to 10 million ARR involves understanding the ideal customer profile, utilizing lookalike customers, and implementing efficient direct sales tactics.

Blake encourages founders to be proactive in their exit strategies and to utilize platforms like Flippa for buying and selling businesses. 

Key Timecodes

• (0:46) – Introduction to Blake Hutchinson
• (1:26) – What is Flippa?
• (2:27) – Flippa’s Revenue and Business Model
• (3:24) – Employee Distribution and Offices
• (3:53) – Blake’s Entrepreneurial Journey
• (4:08) – Transition from Entrepreneurship to Corporate
• (7:41) – Dealing with Entrepreneurial Failure
• (17:45) – Importance of Preparing for an Exit
• (10:52) – Common Misconceptions in SaaS Exits
• (14:50) – Valuation and Multiples for SaaS Companies
• (22:37) – Maximizing Exit Outcomes
• (25:01) – The Selling Process on Flippa
• (30:52) – Why Buy an Existing SaaS?
• (28:54) – Challenges in Buying and Selling SaaS
• (35:27) – Advice for Growing a SaaS to 10K MRR
• (36:57) – Advice for Scaling to 10 Million ARR
• (39:37) – Summary and Key Takeaways
• (39:49) – How to Contact Blake Hutchinson

Transcription

[00:00:00.000] – Blake

I think you should prepare for an exit from day one. I think you should visualize the check, and I think you should work towards that check. And so you should have in your head certain milestones which give you confidence and evidence that you’re heading toward that check. When your first idea doesn’t quite make it, you either choose to opt out or you choose to go again with a slightly different version. Often, acquisition entrepreneurs, institutional investors, are buying something because it has jumped the hurdle and it has survived. And not only that, it’s thrived. And so the choice of buying something that works versus trying to start something that might work is actually obvious when you think about it.

[00:00:46.650] – Joran

In today’s episode, my guest is Blake Hutchinson. Blake is the CEO of Flippa, a platform where you can buy or sell online businesses. Before starting at Flippa, Blake started his career working for Lonely Planet, where he started as a business development associate and was the Director of business development when he left. He also founded a VC-back company called Good44, which he sold on Flippa, worked as the head of strategic partnership at Xero. He was a general manager and CRO at Luxury Escapes, which he has helped to grow to 275 million per year in gross bookings at that time. And we’re recording this episode live from Amsterdam. So thanks for flying all the way from Melbourne for this recording.

[00:01:25.960] – Blake

Thank you for having me.

[00:01:28.300] – Joran

Nice. We’re going to dive in some quick questions to get to know Flipper, get to know you. First of all, when did Flippa get started?

[00:01:36.430] – Blake

So Flippa is 15 years old. We had our 15th year anniversary last month in July 2024. So obviously a lot of water under the bridge since that time. Fifteen years ago, very few online businesses, very few digital assets, and going strongly.

[00:01:51.590] – Joran

Yeah, because in one, two senses, what does Flipper do?

[00:01:55.030] – Blake

Flipper is a marketplace to buy and sell businesses. It happens to be that we are an end-to-end platform with a network of services. We have due diligence, we have brokerage, we have M&A insurance, we have a payments platform. All of that is designed to support business owners who look to exit and buyers who look to acquire. We are unique in the sense that we only do digital and online businesses, and we do over 15,000 transactions per annum.

[00:02:23.000] – Joran

Yeah, because it was one of my next questions, what is your current revenue? Can you say anything about that?

[00:02:27.410] – Blake

Yes, we do a couple of hundred million dollars in gross bookings value. We do a gross bookings value, in gross transaction value. In Gross Transaction value, we have, as I said, over 15,000 transactions against five different monetisation types. So SaaS, e-commerce, iOS and Android, content, and social via channels.

[00:02:45.720] – Joran

Yeah. And is your revenue recurring or is it like a one-time transaction when somebody purchases?

[00:02:51.820] – Blake

So we have multiple revenue streams, and that might be a nice message to different founders out there. If you can de-risk your business, particularly in challenging macroeconomic circumstances with different channels of revenue, it’s helpful. In our case, we have listing fee revenue, we have success fee revenue, and we have subscription revenue.

[00:03:14.600] – Joran

Yeah, I Interesting, because then people will already start paying by listing, and if they sell, if they’re successful, you’re going to get more money out of that.

[00:03:20.780] – Blake

Yes.

[00:03:21.730] – Joran

How many employees does Philippa have?

[00:03:24.020] – Blake

Seventy-five.

[00:03:26.980] – Joran

Nice. An office in Amsterdam, main office in Melbourne, Yeah.

[00:03:30.460] – Blake

So Melbourne is product and engineering. The Australian market is still relatively nascent as it relates to mature online business ownership. Our biggest office is in Austin, Texas, where we have most of our sales and marketing operations. And then we have a growing office here in Amsterdam, looking after the EMEA region.

[00:03:48.460] – Joran

Yeah. Nice. And a personal question may ask, how old are you or young?

[00:03:53.060] – Blake

I am 44 years old. Nice. And I feel like I’m 60.

[00:03:57.800] – Joran

Because that’s one thing, because you also started your own business, right? Which makes you age a lot quicker. I guess maybe one question, what made you go back to corporate?

[00:04:07.700] – Blake

I guess first and foremost, after you have run a business for six years, particularly a business which did okay but didn’t quite make it, you often need a little bit of a recalibration and maybe a reset. I didn’t want to go into an environment that was slow-paced, and I didn’t want to go into an environment was less innovative. But I did want to go into an environment which was fast-paced and growing and had a very strong balance sheet because obviously, as a startup founder, the capital at your disposal is often what constrain some of those decision-making efforts or decisions. So I ended up going to zero. At the time, I think Xero was probably 400 staff. When I left, which was two years later, we were a thousand staff. At the time, one of the fastest-growing SaaS businesses in the world, Forbes was world’s most innovative. And you learn a lot from an experience like that in a company that’s clearly made lots of right decisions. And so I wouldn’t say it was a corporate per se, but it was certainly a bigger business than I had just come from being my own. And that set the pathway to the rest of my career.

[00:05:20.900] – Joran

Yeah, because in the end, that’s still a startup. If you’re growing so fast, everything breaks all the time. Is that also something which keeps you motivated? Getting into fast scaling You’re really into the business of building businesses?

[00:05:31.060] – Blake

Yeah. I wouldn’t survive in a slow-paced business, and I wouldn’t survive in a business which wasn’t change friendly. And yes, I’m motivated by fast growth businesses. I’m motivated by growing businesses. I’m motivated by building customer-centric businesses, which is solving a real problem. In our case, we make entrepreneurs happy. Every time we sell an online business or digital asset, we’ve put money into the back pocket of a hardworking founder or entrepreneur, and that makes them very proud of what they’ve built. It makes us very happy to make them proud. And in most cases, they go on to do their next thing, and we’re the beneficiaries of that, actually, because the experience we provided for them through our platform and through our matchmaking service with a network of buyers gives them the opportunity to go and do something new.

[00:06:24.670] – Joran

And do you then often see them coming back later on? Yeah.

[00:06:27.500] – Blake

So we are what most people would consider to be a managed marketplace. And in that same sentence, we are what most people would consider to be a high value, low repeat marketplace. Now, of course, the high value nature of a low repeat marketplace is an insurance policy. You don’t benefit of the repetition, but you get very high order values. And as a function of that, the unit economics will tend to make sense. But we’re not as low repeat as most people would think. So 45 % of our buyers repeat on the flipper platform. So they buy something, they like what they bought, they do well from that acquisition, and they do it again. And they can do it again as an individual, or they can do it again as part of a corporate institutional, in many cases, family office. And so, yeah, we’re a high value, low repeat marketplace, but we just do have some repetition.

[00:07:19.400] – Joran

Yeah, nice. We’re going to really dive into buying and selling a SaaS, particularly in a sec. So if you look at your journey, and I guess no matter if it was growing your startup, Xero, maybe even at Loony Planet, everybody hit rock bottom at one moment where you’re either financially or personally. Can you tell me about a moment like that in your journey and how did you get out of that?

[00:07:41.410] – Blake

Yes, I can. So the business I created took on many different forms. This is often the case. When your first idea doesn’t quite make it, you either choose to opt out or you choose to go again with a slightly different version. I went again many times with many different versions. That’s extraordinarily tiring. I think rock bottom was ultimately when I realized I couldn’t afford a roof over my head. I was probably making the rest of my family miserable as a function of my dogmatic and dogged approach and personality. The point at which you find it very difficult to get out of bed and keep going is the point where you have to seriously consider whether you want to keep being an entrepreneur at least at that stage of your life. The business I created took on many forms. On about the fifth variation, on about the fifth variation on about the sixth year, I was finally able to say, despite the great effort, despite many happy customers. We were never going to build something that was going to provide shareholder return to the level that the shareholders needed. And we were never going to build anything that would make me fulfilled enough.

[00:08:58.570] – Blake

And so at that point, it’s a function of saying, what do you do now? And it’s also scary because if you’re not earning any money, it’s not like you have a protective nest around you. So then you’ve got to plot what’s next and do that really fast. In my case, I gave myself 72 hours to land an interview with one of 10 companies where I wanted to work.

[00:09:22.450] – Joran

And did it work out?

[00:09:23.490] – Blake

Yeah, I got an interview with managing director at Xero who read an inbound LinkedIn note that said, Here’s my failure story, but I’m good at lots of stuff. I also use your product. I know your product intimately. I know what all of the business owners who use your product go through every single day. Why don’t we have a chat? He said, No problem. He created a role for me on the leadership team, looking after new channels. Nice. That worked out, but I was lucky in that regard.

[00:09:51.830] – Joran

At one point, I guess, I get to come back to the failure. You dragged it on for quite a long time, and at one point, you said, This is enough, and then you had to go and get something else super quick.

[00:10:02.820] – Blake

I think at the point where your wife says, I don’t want you to continue after being such a powerful partner in your corner, you’ve got to recognize some of the detrimental aspects of the entrepreneurship journey and maybe consider a reset. And I did that at the six-year mark.

[00:10:22.520] – Joran

That is definitely the challenge of entrepreneurship. I’m still in the States. Some war stories, right? Yeah, but I guess building a company isn’t just building a company is also managing the other side of your relationship, which is-Lots of stakeholders.

[00:10:35.430] – Blake

Yeah, exactly. Customers, investors, partners, boyfriends, girlfriends.

[00:10:40.340] – Joran

Exactly. We’re going to dive into buying and selling a SaaS. Yes. I read flip a You sold over 450,000 businesses via the platform. Yes. Any insights of how many SaaS companies have been?

[00:10:52.340] – Blake

Yeah, it’s a good question, as a lot of SaaS companies are still maturing, SaaS as a business model isn’t really more than a decade old. I wouldn’t say a lot. I would say within 450,000, we might be talking about a couple of hundred. We’re talking about from small, so businesses which have some traction, $100,000 ARR all the way up to $10 million in ARR. But yeah, I would say I don’t think even 100, actually, out of the 450,000 assets we’ve sold through Flipper’s 15-year journey, I think very few.

[00:11:30.030] – Joran

When we talk about selling or buying even a SaaS business, are there any common misconceptions in those hundreds you’ve seen so far?

[00:11:38.930] – Blake

Yeah. So I think there’s some really obvious ones. The obvious one is where people call themselves a SaaS business, but their metrics are anything but. And if you have an insanely high churn rate, call it 25% monthly, it’s hard to imagine that you are a viable, sustainable, occurring revenue business because you’re just leaking at a rate which is almost impossible to keep up with as you think about net new customer acquisition. So one of the things that we talk a lot about is the business truly considered SaaS? One, is it Is it truly software? And two, is it sticky enough to truly resemble recurring revenue in such a way that a SaaS buyer and/or investor would be interested? A lot of people think about subscription revenue as SaaS revenue. If It’s not. It’s subscription revenue. It’s recurring. But the business that is being sold isn’t actually selling software. An obvious one is you need to understand what SaaS is. Second one is that they need to be big and at scale. So if flipper operates in subscale M&A, that’s a really important category of the M&A ecosystem that can provide support and services for business owners of all sizes.

[00:12:58.770] – Blake

You don’t have to be VC contract to grow a good SaaS business. You don’t have to achieve unicorn status to get an exit. You don’t have to be profitable to get an exit. You do have to be a good quality business that is customer electric offering real value. So let’s define that a little bit. Businesses where the revenue is declining are very difficult to sell. And so flipper is best suited, and SaaS business owners in general are best suited to the M&A process when they are either growing revenue or where their revenue is flat. And that could be a function of them not being very good at sales or marketing despite them having a great product. An investor will still be interested. So one of the misconceptions is that you have to be Fast growth. You don’t have to be fast growth to enter the M&A phase of your life cycle, but you do have to have flat or growing revenue. Probably the other one is that investors going to pay you for long term opportunity that you haven’t realized. That’s a misconception. They will not pay you for long term opportunity that you haven’t realized.

[00:14:08.560] – Blake

That’s for venture capital. A buyer in a subscale M&A environment is going to pay you for prior performance. Yes, they will consider opportunity for their benefit, but they’re not going to pay you a premium multiple because all of the things that you say you will realize that you haven’t realized is now for them to benefit from. They will figure that out themselves, and they will simply pay you for the performance that you have achieved prior.

[00:14:38.080] – Joran

Yeah. And then one question about this because you mentioned previous performance indeed and not the high multipliers. Is there a typical way on how they would value a company? Do you value the company as Flippa? Yeah.

[00:14:49.870] – Blake

Certainly, if it’s a profitable company, a buyer and an investor on Flippa will look at a net profit multiple. The net profit multiple is revenue, obviously minus cost of Sales minus OpEx in the event of CapEx minus that too, plus addbacks. Let’s say for argument’s sake, you had a large consultancy fee payable to a developer prior year that is unlikely to be a carry forward cost. They would strip that out, we would add that back, and therefore, they would look at you on a net profit adjusted basis. If you’re not profitable, they will require you on an ARR basis, but they’re not going to pay public market multiples for a subscale business. The reason public market multiples are higher, even though right now they are constrained, they’re higher because one, you’re operating at scale, and two, because there’s liquidity available to investors in a public market context where the business is operating at substantial volume. That’s not the case in subscale. So therefore, the premium will come as a function of how well you’ve been doing in the past, and that’s really a reflection of your growth rate.

[00:15:58.950] – Joran

What are these multiples Where do people have to look at? Is it 2 times ARR up to 5, or is it premium 10 plus?

[00:16:08.840] – Blake

So strategics will pay a premium, and we have seen multiples still as high for subscale businesses up to eight times ARR. But that is rare. I want to make sure I say that in bold. That’s rare. The strategic had a real interest in that or those assets. The strategic can It can imagine attaching that asset to its existing portfolio of companies or its existing customer base, and it can imagine getting a return. Plus, there’s some competitive tension, and they want that asset, and they want that asset more than their competitor wants the asset, and therefore, they’ll pay a premium for it. A more standard multiple in sub-scale M&A right now is 2-4 times ARR. Now, if you take the public market multiples, if you look at something like a Squarespace or Semrush, their business is operating at substantial volume, at substantial scale. They’re in the public markets, and they’re only trading at five times. Now, they’re trading at 30 and 40 times EBITDA, but on a ARR basis, they’re trading it five times. So you can’t possibly expect that the standard subscale SaaS business pursuing an M&A pathway is going to achieve the same multiples that public markets are.

[00:17:26.250] – Joran

Makes sense. We got that out of the way now, so everybody can tone down their expectations on that.Difficult..

[00:17:32.130] – Blake

I know.

[00:17:32.480] – Joran

So I guess if people still want to sell their SaaS, so when we look at selling, what should a founder prepare themselves for? Maybe even, I guess, the first question, when should you start preparing for an exit?

[00:17:45.080] – Blake

I made this mistake when I was a founder. But I think you should prepare for an exit from day one. I think you should visualize the check, and I think you should work toward that check. And so you should have in your head certain milestones which give you confidence evidence and evidence that you’re heading toward that check. Why? Because we shouldn’t all be money-orientated. But the good news is, if you orientate to that check, it’s a good North Star, whether you ultimately pursue an M&A process or not, whether you ultimately raise venture capital or not. If you set yourself a goal that is evidence of you building a viable, valuable company for someone else, you’ve probably made the right decisions for your company, the right decisions for your customers, you’ve probably built the right things. And so we talk about this a lot, even at Flipper. So if we want to achieve something, if we want to achieve one million business sales, to achieve one million business sales, that’s the outcome. We need to make good quality decisions and stay focused on that outcome. And so that as a North Star gives us the ammo to make the right decisions.

[00:18:55.070] – Blake

I think the exit process is similar. If I want to sell for $10 million, I need to understand that the ARR multiples of X and therefore work towards that ARR. And so therefore it sets in place a good discipline. It will also imply you understand your metrics because you’re not going to get the check without those metrics. So understanding what an investor or buyer looks for becomes a playbook for the way you run your business. And if you know that an investor who’s willing to give you that check is interested in ARR of X, churn of Y, growth rate of Z, then you can orientate your decision making to those metrics. I think in turn, it ends up meaning that if you ultimately get there, your business is in a cleaner state. You’ve got the metrics and the evidence of those things over time, and you’ve probably got the discipline in place to understand your financials. So you’ll be using cloud accounting software, you’ll be using some SAS analytics dashboard, and all these types of things actually set you apart from others and give you good discipline. We meet so many SAS founders and founders in general who So one, don’t really understand the metrics that matter, don’t have any tracking in place.

[00:20:03.770] – Blake

All they can tell you is how much revenue they’re generating. Problem with that is that’s the output. What’s actually really important is the input or the inputs.

[00:20:13.120] – Joran

Yeah, and in the end, it doesn’t have to be that complicated because nowadays you have so many SaaS tools out there.

[00:20:18.110] – Blake

Yeah, great tools. Yeah, and even the payments platforms will give it to you. If you use Stripe or Recurly or those types of platforms, Exactly.I’ll tend to provide you the insights. You just got to understand what to look for.

[00:20:29.780] – Joran

Yeah, And the tool where you work, Xero will give you insights as well. Like the challenge, for example, I have and maybe other people have as well. If they’re in a specific country where an international tool like Xero doesn’t really work out because no accountant uses it here because they all have their own local Booking software, it becomes a bit complicated, but we are self already looking at, Okay, how can we take advantage of it? So later down the line, we don’t have to figure out how do we switch everything from a Dutch accounting software to-Yeah.

[00:20:58.750] – Blake

Someone will say something like, Yeah, I’ve managed to establish a thousand free trials. My business looks like it’s in great shape, but that’s a vanity metric, right? The good thing about planning for an exit early is you need to understand what people will look at when they think about buying your company, and that will therefore give you the orientation from a metric standpoint. So it’s not actually trials that matter. It’s how many of those trials convert into a paying customer that remains with you for a long time.

[00:21:21.070] – Joran

Yeah, because this goes really well on the next question, the common mistakes at the preparation phase, so having the right metrics. Any other things you really see always going Is there something wrong where somebody could have prepared themselves better?

[00:21:34.050] – Blake

Yep, I guess overreliance on too few customers. So enterprise-grade SaaS works incredibly well at scale. But enterprise-grade SaaS at subscale, when you’re showing evidence of 5, 10, 50 paying customers, that is too risky. And often find that people say, Yeah, but isn’t it great? I’ve got these great logos on my It’s probably good in the context of a VC pitch. It’s probably risky for an acquirer when they see too few logos. So overreliance or dependency on few customers, I would say, is one of those things.

[00:22:15.910] – Joran

Yeah, because in the end, it’s too much of a risk if they would leave. If we take that into consideration and we have the need to have the right metrics. Are there any other things a SaaS founder can do to maximize the outcome of, I guess, their exit? We talked about ARR already. Any other things they should be doing to make sure they get the most out of there?

[00:22:36.830] – Blake

I would say the other one is actually less about the business and more about the individual, the founder. You need to be flexible with you, respect to your deal making. To give you some sense of a deal that I’m familiar with on Flipper right now, it’s not a big deal. It’s a million dollar deal. We have been able to sell the business because the founder, he’s been willing to stay for a 12-month period of time to run the business for the investor while the investor and buyer familiarizes themselves with how the business runs. And so when you are pursuing an exit, it’s not as simple as selling receiving the check and flying to Majorca. It’s often about giving the buyer and the investor comfort that they are going to achieve a safe landing. And so that will require flexibility. And it’s one thing we try to talk to founders as early as we possibly can about, where are they willing to flex and where are they not willing to flex? And so if you can position yourself as being easy to work with, you’re more likely to get a deal done.

[00:23:45.040] – Joran

Yeah, easy to work with, and I guess also in this case, willing to help, because in the end, you need to make that-Easy to work with, easy to negotiate with, willing to help, understand that we’re actually talking about a lot of money.

[00:23:55.360] – Blake

So it’s funny because founders will say it’s just a million dollars, but they desperately want it. And Also, the acquirer has to figure out whether the business is actually worth a million dollars. Not that it’s just a million dollars and they’ve got $10 million on their balance sheet to invest. This particular business is worth spending that $1 million on. And what we find a lot of founders forget is investors and acquirers have choice. So if you start to become difficult to work with, regardless of how good your business is, they will make their decisions elsewhere. And so that’s a really important piece that we try to talk to founders and investors about.

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[00:24:52.210] – Joran

When a founder received an offer, you mentioned you guys do the entire process, right? Can you walk me through a little bit like what What is happening in this?

[00:25:01.400] – Blake

Yes. So first part of the selling process tends to be a valuation. We have accredited M&A advisors that will obviously help with understanding that valuation. That valuation is an indicative valuation based on most recent fair market value for similar businesses. We also have a programmatic valuation that’s free, that’s easy to use. You can find that at flipper. Com. And that will take into consideration the data that we sit on that governs those historical sales and makes an informed decision as to how that business is valued and likely be worth on the open market. Then I am essentially listed, and we have both private marketplace and public marketplace. Now, even on the public marketplace, almost all businesses are protected by a confidentiality and nondisclosure agreement. On the private marketplace, they’re not actually seen on the public environment at all. But sometimes we have brand-name clients who they don’t want the employers to know, they don’t want the competitors to know, they’re worried about even confidentiality agreements being signed. So everything’s just not even available. They’re obviously difficult sales because we’re so benefited by the size of our customer base or buyer base. At that point, matching is prolific.

[00:26:10.290] – Blake

So we do 425,000 programmatic matchage a week. That’s our AI. So the AI basically tries to figure out the most likely buyers for the asset. Match brings those buyers into the platform and exposes some data. The data will come out of, obviously, anything manual any manual inputs, but also those connections. So we have 15 different data integrations. So if you’re connected to Stripe, we will pull down ARR, we will pull down your churn rate, we will pull down your LTV. So we have these data integrations which make merchandising the asset and positioning the asset in the eyes of an investor a bit easier for founders. Then, negotiation happens in our deal room where buyers can obviously negotiate with buy themselves, but they can also invite in accountants, bookkeepers, partners, due diligence experts, lawyers, et cetera. And all that happens within the platform. Ultimately, we have asset purchase agreements and stock purchase agreements. They’re modularized, and they also have Dropbox eSign for electronic signature and execution when you get to that point. Tends to be that 99 out of 100 deals will start with an LOI. That happens on the platform. A bit of back and forth negotiation, and then the logement of those stock purchase and/or asset purchase agreements.

[00:27:24.670] – Blake

They will then most typically go to due diligence. We have due diligence in-house We also have third-party due diligence providers, or of course, a buyer can do their own due diligence or partner with any other due diligence provider. We then have our payments service, which is either one of escro. Com, pretty straightforward, but we also have what we call Flipper Pay. Flipper Pay is a Bank of America trust account. From there we can control lots of things: domain transfer, domain handling, and of course, the transfer of funds. Finally, we have the world’s first subscale M&A insurance product. That’s a reps and warranties insurance product that is available for both buyers and sellers to give both buyers and sellers peace of mind for either non-disclosure or incorrect disclosure. It’s a reps and warranties product. Which has historically been available for big M&A deals, the one %. But what Flip is doing is building the investment bank for the 99 %. We’re democratizing exits and acquisition. And so we’ve built services that are analogous to big high street services we’re bringing into our world and making these exit processes a bit easier. So that’s hopefully an end-to-end workflow.

[00:28:40.120] – Joran

Nice. And I guess when you listen to this, it sounds pretty straightforward, but a lot of things can go wrong. Are there typical moments where a lot of deals stop, as in, or they don’t go through?

[00:28:53.760] – Blake

Most of it’s a negotiation. So most of it is, I will give you 3 million, I want 5 million. Okay, I’ll go to 3.5. No, I refuse. I’ll keep building my business. Okay. Then two weeks later, the seller has remorse and says, Actually, I would like you 3.5 million. And the buyer says, Sorry, I went on and bought something else. Most deals fall over in a lack of alignment between what the buyer is willing to pay, which is actually fair market value, and what the seller is willing to receive. And it’s the distance between those two numbers that will make or break a deal. Very rarely does a deal fall over in DD. Obviously, it happens, but very rarely. Once a buyer has said they’re going to spend five million dollars, and once a seller has said no problem, it tends to be that everything that flipper has disclosed, everything that the seller has disclosed, stacks up, and the deal will continue on. Time’s a bit of an issue. So you can have situations where deals should happen, but one party takes too long and the other party gets really annoyed. And as a function of getting annoyed, one party agrees to move on and the other party is grumpy, but mostly negotiation, distance between two numbers.

[00:30:19.480] – Joran

Yeah. As you mentioned, DD doesn’t often use a blocker because you already connected so many platforms at the beginning that they have so much insights already. A lot of insight. Something has to be really on fire to not go through at the end.

[00:30:31.820] – Blake

Accounting software. We’ve also done our own human verification. So we verify our revenue as an example of lots of things. Yeah, very rarely is it due diligence where a deal will fall over.

[00:30:41.660] – Joran

Yeah. And I want to also talk about the other side of the platform. So buying a SaaS? Yeah. Why should people consider buying an existing SaaS rather than building one from scratch?

[00:30:52.400] – Blake

Statistics. We’ve all heard the statistics about how many startups fail and how many startups succeed. So I’ve been a startup founder. The odds of you succeeding are very low. It actually makes us all sound a bit crazy when you think about the statistics. If I buy something that last year did $1 million in revenue at a churn rate of sub 10 % and a growth rate of 25 % year on year. When I buy that, it’s highly likely that what I just bought improves my chances of going to $10 million in ARR Then those same chances, should I be starting at zero? Most of the reason that people buy is to play the statistical likelihood of them being able to run an asset which is a good quality business, which gives them a better chance of free cash flow, profitability, and ultimately improving on something that somebody else has strived so hard to build. There are other reasons, of course. One, it’s strategically beneficial for everything else I do and own. There are examples of where there is a certain component of the business which is very important to me. There are examples of where the founder who I’m going to negotiate to retain is very important to me.

[00:32:20.150] – Blake

But often, acquisition entrepreneurs, institutional investors, are buying something because it has jumped the hurdle and it has survived. And not only that, it’s thrived. And so the choice of buying something that works versus trying to start something that might work is actually obvious when you think about it. So hopefully that helps.

[00:32:45.760] – Joran

Yeah. And I guess maybe one thing which is going to hold off a lot of people is the money aspect, right? Because you were now talking about buying a business which is a million. So if you look at the multiples, then probably most people won’t have it on the bank card. Maybe then one question here, what would you recommend? Start maybe with businesses which do a lot less, try to grow them further, sell that, do another one.

[00:33:06.960] – Blake

Yeah. So a lot of people will self-promote. So they will start with something small and then get bigger. I guess a couple of examples of this. You can find something that has a big audience, but it hasn’t recognized its SaaS potential. So for example, there was an asset on Flipper that had a large and prolific user base. It was called It was called watermarking. Com. It was a watermarking software so that a wedding photographer or a extreme sports photographer could upload their imagery, have it watermarked programmatically, and then send it off to the client to assess it for whether they wanted to buy it or not. They charged a one-time use for perpetual access. And lots of buyers, we could see this happening inside the deal room, lots of buyers were saying, Can you tell me What is the common use case here and how often do people return? And the seller was saying, Oh, they return? Like, every week? After every wedding, the photographer comes back and uploads a new batch of images. And you could see buyers going, Oh, wow, this is actually a SaaS business that has never been a SaaS business.

[00:34:20.020] – Blake

And so they bought it and changed its business model. And it wasn’t expensive. I’m talking about massive utilization. Hundreds of thousands of users, but no recurring revenue, and a relatively sticky product. That’s an example of someone buying something for probably $100,000. Now, I accept that not a lot of people have $100,000, but also if you’re going to create a world-class SaaS business, you probably are planning to either use your own time and energy, which is certainly worth $100,000, or you’re going to borrow money to start, or you’re going to raise some friends and family. So $100,000 to go and acquire something with traction and then build from there is probably a smarter play.

[00:35:00.910] – Joran

Yeah. And I think this is a really great idea, as him buying a business which is not levering the subscription SaaS business model yet, transform it, and you already have that existing user base you mentioned. Yeah. Nice. We’re going to jump in the final two questions. So when we talk about growing a B2B SaaS company, what advice would you give a SaaS one who is just starting out and growing to 10K monthly recurring revenue?

[00:35:26.710] – Blake

Yeah, so I’m in 10K monthly. I would probably first think about price point, and I would think about the least path of resistance. So what is the most your clients are willing to pay you? And how many clients do you therefore need before you can tick off that milestone? And so often people think about how they can own a market and therefore freemium products, cheap products, these types of things. If you’re trying to get to 10K, and let’s say for argument’s sake, you’re not wealthy, then the pathway to keeping a roof over your head is not about winning the world, and it’s not about freemium. It’s about the highest price point your customers are willing to pay for you to tick off that milestone. And that’s different as you scale. You, over time, can build a freemium product and use that as a lead magnet. You, over time, can charge very little and go for scale. But if the question is actually what is the fastest pathway to 10K? The fastest pathway to 10K is the highest price point that each customer is willing to pay.

[00:36:36.050] – Joran

I can definitely relate to that because we started as a freemium model, and in the end, we terminated it last month to get to profitability a lot quicker. It makes sense, right? We should have done this podcast recording six months ago. So let’s assume we now pass 10K Monday Recurring Revenue, and we’re going to make a big jump. What advice would you give somebody who’s growing to 10 million ARR?

[00:36:57.300] – Blake

Yeah. So I really believe in lookalikes. So I really believe in understanding your ICP and building out personas. And so if you can understand the characteristics of the people that got you to 10K, you should actually be able to then map the collection of other business owners or other potential customers that look substantially similar. And then it’s a function of how you go to them in the most efficient manner. I would look at various tools. I would look at something like a clay where you can get a user’s LinkedIn account, get a user’s email account, potentially get a user’s phone number, and I would build workflows around that ICP, and I would start to play the direct sales game. And so, again, this doesn’t mean that you need to become a direct sales company. But if your job is simply to go from 10K to 100K, then it would be a function of how you find more similar and substantially similar customers in the fastest the possible way for the cheapest cost of acquisition. And the cheapest cost of acquisition is emailing people and dialing people. And if you’re not willing to email people and dial people, don’t become a founder.

[00:38:13.740] – Joran

Yeah. And I guess it all starts also with getting, as you mentioned, the right people to target. So mimicking the clients you already have. So you really have clearly defined your ICP so you can target those. Nice. Let me try to summarize. When you’re starting out, day one, try to visualize check, build milestones towards it so you know exactly where you’re going. But build a good company with the right metrics. Make sure you use the right tools which connect with many platforms so you can leverage that later on. It’s really risky to have a few enterprise clients. When you are going to do M&A, be flexible in the deal, stay on if needed, but you either need to be flat or growing in revenue when you’re going to do that deal. It is going to be based on previous performance, so definitely take that into account. So not future potential performance. It’s really rare to receive a eight times return on your ARR. Standard is more two to four times. You can secure your M&A flow of deal now as well. Most deals fall at the lack of alignment or the speed of the process.

[00:39:17.330] – Joran

And I guess if you are thinking about buying a SaaS, it’s statistically better than starting one from scratch. And if you need to get an ID, buy a business which is not levering the SaaS business model yet, and you can turn it around. And when you’re starting out, charge as much as possible to get to 10K MRR as soon as possible.

[00:39:36.870] – Blake

Fantastic. That was fun.

[00:39:38.720] – Joran

Nice. If people want to get in contact with you, you already mentioned you messaged people on LinkedIn. I got this interview just by, I’m messaging you on LinkedIn, so I might know the answer, but how do people get in contact with you?

[00:39:49.260] – Blake

Yeah, I’m more LinkedIn than I am anything else. I’m not exactly a Twitter warrior. So yeah, get me on LinkedIn. You can also reach me at blake@flipper. Com. I’m happy to help people think through their process.

[00:40:00.400] – Joran

Cool. If you’re listening, make sure to leave us a review on Spotify or Apple podcast or wherever you’re listening. We’re going to add a poll to it as well, so make sure you answer that so we get to know what you’re thinking about this episode.Thanks.

[00:40:12.440] – Blake

For coming on, Blake.Thank you so much. I appreciate it.

[00:40:14.350] – Joran

Cheers. Thank you for watching this show of the Grow Your B2B SaaS podcast. You made it till the end, so I think we can assume you like this content. If you did, give us a thumbs up, subscribe to the channel. If you like this content, feel free to reach out if you want to sponsor the show. If you have a specific guest in mind, if you have a specific topic you want us to cover, reach out to me on LinkedIn. More than happy to take a look at it. If you want to know more about Reddit, feel free to reach out as well. But for now, have a great day and good luck growing your B2B SaaS.